Social media is no longer the exclusive realm of techies and geeks. The rapidly growing sector is proving hard to resist for entrepreneurs who have few technical skills, but know what makes a successful business. So what's more important for success, the right commercial skills or a bright idea?
Doug Richard, a judge on Dragons' Den and founder of the School for Startups, is a seed investor. "It's rare to find someone just starting a business who will have all the necessary skills. Most entrepreneurs with a knowledge of IT lack business experience and vice versa, but as an early stage investor I put in time to get the operation self-sustaining."
Vivion Cox has several businesses in the technology and lifestyle arenas. He says they require many of the same skills. "In the future there won't be technologists or business people but a hybrid of the two. I'm from a business background with an MBA from Cranfield School of Management, which helped me spot the opportunities in the technology field. It's fairly easy to set up a social media enterprise, but without business rigour there are many hazards."
Business schools and universities increasingly see that their students' technology-focused entrepreneurial talents need nurturing. Lancaster University Management School (LUMS) offers a Masters in e-business and innovation that has been running for nine years. Half the students have a first degree in management and the others studied information and communication technology, allowing them to share in each other's experiences. Around half of the 200 alumni will have attempted at least one venture by the time they graduate, estimates Frank Cave, director of the programme, but he adds: "We tell our students there's a right time to launch a business, and whether it's now or 10 years ahead the important thing is to have the tools to do it."
Kevin Jones, a professor at the school of informatics at City University London, says it's crucial to recognise that both business and technology play a part in a successful IT enterprise. "Often the two disciplines fail to respect the other's strengths. Collaboration is key, particularly in social media, where a business mindset is essential to ensure a return on investment."
Matt Draycott, enterprise director at Glyndwr University, Wrexham, runs a project for developing entrepreneurship including technology and social media. He finds it attracts students from a range of academic disciplines. "We expected interest from business and technology students, but people studying English want to build apps for books and creatives are also finding innovative ways to use technology."
Benjamin Wirtz, a LUMS alumnus, advises any students who have entrepreneurial ambitions to get started instead of talking about it. "You're learning the theory, but without any practical context it's hard to make sense of the lessons. And if at first you don't succeed, the experience will be valuable."
Wirtz studied how people build and maintain relationships for his Masters. After that, he developed Handy Elephant, a productivity app that keeps track of phone calls and emails to maintain important business relationships.
What should universities and schools be doing to nurture students' entrepreneurial ambitions? Phil Cox, head of UK, Europe and Israel at Silicon Valley Bank, is on the board of Entrepreneur First, a scheme for aspiring entrepreneurs. He says academics should provide support and guidance based on their research and analysis. "On a practical level they must encourage networking and communication between aspiring entrepreneurs and successful companies."
Financial support and competitions are good ways to spark bright ideas. Cass Business School in London has an entrepreneurship fund that provided financial backing for Flypost, an iPhone app launched by an alumnus, while Graham Weir, a Masters student studying software engineering, developed the university's official iPhone app as part of his coursework. The university also runs the CitySpark competition to help students develop and pitch business plans, many of which are focused on software and social media.
The British Library's Business & IP Centre is an invaluable resource for anyone planning on starting up their own business. So says Jessica Ratcliffe, founder of online video-game exchange service GaBoom, who won the Varsity Pitch 2009 when she was at Royal Holloway, University of London. "I first had the idea for the business aged 15, but it wasn't until I visited the Business & IP Centre while at university, for a one-to-one session with a business expert, that I understood what I needed to get started. The centre has brilliant online resources for conducting market research, which gave me free access to a huge amount of business information. It also provides young entrepreneurs like me with great networking opportunities with established business people," she explains.
So how do you get the money to turn an idea into a business? Cave advises a lean beginning. "Social media businesses can get started quickly with little funding. Three of my current group are already in their second start-up, though two have taken paid employment while working on it. It's increasingly hard to get funding, even enough to see them through the first year."
What do investors look for when they assess a start-up company? Richard sizes up the pitcher as much as the pitch. "I assess the quality of the idea, the size of the potential market and whether there's room for it to grow. But I also ask myself whether I can work with this person, as I find that in the early stages of development I do a lot of the work."
Ratcliffe was on the other side of the table as a contestant on Dragons' Den and found it a valuable experience. "I learned the importance of preparation. Before going I familiarised myself with every aspect of my idea so I could present my answers in a clear and concise manner. It was a great opportunity to get feedback on my idea from five highly successful business people."
Business courses teach that a business plan is essential when seeking investment, but those at the sharp end say it's a waste of time, at least when going for the first round of funding. "Have a plan in your head," says Richard, "but as for writing it down – most of it won't happen anyway. You can forecast the money that you'll spend in the business, but you can't forecast the money you'll make. One is in your control and the other isn't."
Lucian Tarnowski, named a young global leader by the World Economic Forum in 2010, agrees you don't need a business plan to raise money at the early stage, provided you can articulate your idea and get across your passion. "I've been offered a large amount of investment after a 30-minute meeting without having a business plan. No one is going to read a 30-page document. Just summarise your pitch on a handful of slides."
While reading theology at Edinburgh University, Tarnowski took part in a government-funded entrepreneur pre-incubator scheme that backed people with potential. "It trained us in start-ups, the basics of finance, fundraising, marketing – I loved it!" he says. The government axed it, but the scheme inspired Tarnowski's to create a platform helping jobseekers build relationships with employers through a social network. He established bravenewtalent.com upon graduating in 2008, and now has 36 staff, plus offices in three continents.
Not every concept will be successful at the first, or even the second, attempt. "Ideas you have in the shower are rarely what the market wants," says Tarnowski. "But the skills you gather along the way are valuable. I learned so much from my mistakes – I underestimated how much work it would take to create a great product and, early on, I lacked focus. We put the cart before the horse, selling a product that was really a prototype. It was when we got venture capital to rapidly expand the development teams that we created a world-class product."
Isabelle Duston, a graduate of EAP in Paris, which later merged with ESCP Europe, admits her second enterprise was a "total flop". Her first, a cookery app published in 12 languages, was doing well and she moved into education, making interactive books for the iPad. "Everyone thinks it's a great idea, but people don't give kids iPads. I hadn't done my market research, but I met storywriters and graphic designers then developed a social platform for children to have access to education in their own language."
Things were very different with her first enterprise. "No market study could predict that my best-selling cooking apps would be in Denmark and Switzerland – because they're the only ones in their languages." Duston had stumbled upon the holy grail of successful businesses – a gap in the market.
Cave warns that too many ideas aimed at the social media market are variations on Facebook or Twitter. "Don't imitate or repeat; be original and find a niche," he advises. "Just helping people to gossip with each other or making it easier to download music isn't of great value and, if there's no value, customers will stop buying it."
Bouncing ideas off other people is a good way to test the market. Kai Dai, a Chinese national, used fellow students on the executive MBA programme at the University of Cambridge's Judge Business School as sounding boards when developing his media enterprises, including The Chinese Weekly, aimed at young Chinese students and professionals in the UK. A social media dating website with iPhone and Android apps is next, says Dai. "Discussions with classmates from different cultures and industries have helped me develop my strategy."
In the end, business is about making a profit. "You have to offer a product or service that people want to buy," says Cox. "There are few businesses like Facebook, where you get 300 million subscribers then worry about how you make a profit afterwards. With Klude, which develops businesses' online presence, we adopted a traditional subscription revenue model, so the technology business would grow as the customer base grew. As a result, we took money from day one. A lot of new technology businesses forget the basics of growing a business."
Tarnowski refers to the new wave of businesses being pioneered by aspiring technology entrepreneurs as the Digital Enlightenment. "For the first time, young people are coming into the global economy as authorities – on social media technology. Business models are being reinvented, which is challenging and empowering."
It's up to educators to ensure they provide students with tools to make the most of this brave new world.